What Can Onions Teach Us About Oil Speculators?

Mark Perry
updated | Author's Website
Onions have no futures market, yet their price volatility makes the swings in oil prices look tame.

Fortune Magazine (June 30, 2008) — “Before the government starts scrutinizing the role that speculators may have played in driving up fuel and food prices, investigators may want to take a look at price swings in a commodity not in today’s news: onions.

The bulbous root is the only commodity for which futures trading is banned. Back in 1958, onion growers convinced themselves that futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan Congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.

And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings.”

MP: The chart above shows the monthly percent changes in spot prices for crude oil and onions between January 2000 and March 2012.  During that period, onion prices have been about 7 times more volatile than oil prices, based on the differences in: a) mean monthly price changes (7.7% for onions vs. 1.3% for oil), and b) the standard deviations of monthly price changes (59.4% for onions vs. 8.6% for oil).  

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